What does it mean for an insurer to act in “bad faith”?

Insurance companies are obligated under the law to uphold contractual terms. An intentional failure to do so can lead to recovery on a legal claim alleging bad faith.

FAQs on bad faith insurance claims

If you have been injured in an accident or because of the negligence of another person or business entity, you have likely realized that any legal action you take is really about insurance. From motor vehicle accidents to medical malpractice, many civil lawsuits boil down to what the insurance companies involved are willing to pay for and what they are contesting. When dealing with insurance, you may have heard the term “bad faith” but aren’t sure what this means. Below are answers to some frequently asked questions regarding insurance bad faith claims.

What is the legal definition of bad faith?

Insurance policies are contracts that must adhere to state and federal law. A failure to follow the law can render a contract invalid, or lead to compensation for the disadvantaged party. In California, as in every state, each contract has an implied clause of “good faith and fair dealing.” In essence, by law every contract that an individual or business enters into is assumed to contain within it a promise that each side will act according to the terms and attempt to fulfill contractual obligations in good faith. That means regardless of what written information an insurance policy contains, insurers are obligated to uphold their end of the bargain. A failure to do so can lead to a claim of bad faith.

What is the legal definition of bad faith?

As anyone in a dispute with an insurer knows, insurance companies are motivated to deny any claims they can. Whether it is your own insurance or another’s, insurance companies make money by not paying out claims. In some cases, an insurance policy contains vague language (often on purpose) so that whether a particular accident or incident is covered is unclear. In such a case, a lawsuit can clarify policy terms.

In other cases, however, an insurance company is responsible for paying out on a claim but fails to do so. This happens more often than you might think. An insurer may make unreasonable demands for documentation, for example, to delay or avoid payment. Or the company may be negligent in responding to or investigating a claim. Over the years insurance companies have developed a number of ways to delay or deny payout on a big claim.

Under the law, however, if you can prove that you are the beneficiary of an insurance policy, benefits are due under the policy, and that the insurance company’s withholding of benefits is unreasonable, then you have made a successful claim of bad faith.

What can be recovered in a lawsuit alleging bad faith?

When recovering on a claim of bad faith, you can receive:

· Contract damages, which is the money owed under policy terms.

· Tortious damages, which allow for economic money damages caused by the bad faith in addition to non-economic damages, such as emotional distress.

· Punitive damages, which are damages intended to deter future similar conduct. Punitive damages are only available under certain circumstances in insurance bad faith claims.

I have more questions. What do I do now?

The specifics of a particular claim of bad faith depend on your policy and individual circumstances. This article is not intended to be legal advice. If you believe an insurer may be acting in bad faith, contact Doyle Law Office, an experienced civil litigation law firm with national experience handling insurance bad faith claims, to discuss your particular issue and receive legal help.